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THE OPPORTUNITY COST(S) OF EMPLOYMENT AND SEARCH INTENSITY

  • Julio Garín (a1) and Robert Lester (a2)
Abstract

The flow utility of unemployment plays a crucial role in labor search and matching models. Recent evidence by Chodorow-Reich and Karabarbounis suggests that the flow utility is high on average, volatile, and strongly procyclical. Taken together, these facts imply that labor search and matching models perform worse than prevailing conventional wisdom. In contrast, we build a model where unemployed workers choose between home production and job search. Procyclical job search implies that the effective unemployment benefit is countercyclical. Our results suggest that omitting endogenous search will upwardly bias the measured correlation between effective unemployment benefits and productivity.

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Corresponding author
Address correspondence to: Julio Garín, The Robert Day School of Economics and Finance, Claremont McKenna College, Bauer Center, 500 E. 9th Street; Claremont, CA 91711, USA; e-mail: jgarin@cmc.edu.
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This paper was previously circulated under the title “Variations on a Theme: The Cyclicality of Unemployment and the Relevance of Endogenous Home Production.” We are grateful to Joe Kaboski, Bill Lastrapes, Michael Pries, Jeff Thurk, seminar participants at the University of Notre Dame, the 28th Latin American Meeting of the Econometric Society, the 2013 Midwest Macro Meeting, the 28th Annual Congress of the European Economic Association, the 13th Annual Missouri Economics Conference, and an anonymous referee and an associate editor for helpful comments and suggestions that have substantially improved the paper. The usual disclaimer applies. Lester gratefully acknowledges funding for this research from the Kellogg Institute for International Studies.

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Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
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